Living without credit cards is challenging. There are a lot of reasons why you might want or need to, though. You might be young and not have an established credit history. Or you might be rebuilding your credit after bankruptcy or working to improve your credit score. Some don't have credit cards because they're concerned about carrying debt. Many others are not able to exert self-control and undermine their finances when they have access to credit cards.
Learn more about the downsides of living without a credit card, along with alternatives to remaining card-free.
Not Having a Credit History or Credit Score
To have a credit score, you must have at least one account that’s been open and active for at least six months. Credit cards are often the way people start building their credit history, and if you’ve never had a credit card, there’s a chance you may not have a credit score.
Fortunately, credit cards aren’t the only way to establish or build a credit history. If you’ve had any type of loan—a student loan or auto loan—then you probably have a credit score. A credit score is the trust system that is officially accepted and tells the story about an individual's creditworthiness and financial character. It is needed for any relationship that involves payments, rent, or a mortgage.
Being an authorized user on someone else’s credit card can also help you establish a credit history without having a credit card on your own.
Less Fraud Protection
Credit cards offer the most protection against fraudulent transactions; in many cases, your liability for fraudulent credit card charges is limited to $50, as long as you report the issue within a certain timeframe.
With a debit card, you could be liable for up to $500 of fraudulent debit card charges, depending on how late you report the fraud. You're liable for up to $50 if you notify your bank within two business days. Cash is even worse. If cash is stolen from your wallet, you may never get any of it back.
It May Be Harder to Get a Credit Card Later
You typically need to have established a credit history to be approved for a credit card. Unfortunately, if you've never had a credit card before, this may mean that you don't have a credit history, making it that much harder to get your first credit card later on. However, there’s good news: if you’ve had other types of credit accounts and you have your own income, you have a better chance of being approved for a credit card.
Store credit cards are one option for a first credit card. They typically don't require a high credit score. They may also have a low limit.
A secured credit card is another option for jumpstarting your credit history. With a secured credit card, you make a deposit with a credit card issuer, and you're granted a credit line that's typically equal to your deposit. For example, if you deposit $500, you receive a $500 credit line. If you make your payments on time, you may be given the option to switch to an unsecured credit card in the future. If that happens, your deposit will be refunded.
You Miss Out on a Lot of Great Credit Card Perks
Many people swear off credit cards because they carry the potential for incurring debt—which can be avoided if you charge what you can afford and pay your balance in full each month. Credit cards come with lots of benefits that you miss out on by not having one. Fraud protection, credit card rewards, roadside assistance, travel insurance, rental car insurance, extended warranty, and price protection are just a few perks you can get depending on the credit card you choose.
Certain Transactions Will Require Extra Steps
Renting a car and booking a hotel, for example, are two transactions that are much easier when you have a credit card. If you don’t have a credit card, you may be asked for additional documentation to prove your identity or have to pay a security deposit to complete the transaction. For example, many hotels will place a hold on your debit card for a set amount beyond your reservation total in order to cover incidentals.
For many transactions, a debit card is just as good as a credit card. However, even the debit card falls short in some areas like less fraud protection, no rewards, and security deposit for certain transactions.